the distribution wires firm can, and should, operate as a platform and think about platform strategies as the utility business model evolves. An electric distribution platform facilitates exchange in two-sided electricity and energy service markets, charging a fee for doing so. In the near term, much of that facilitation takes the form of distribution, of the transportation and delivery. As distributed resources proliferate, the platform firm must rethink how it creates value, and reaps revenues, by facilitating beneficial exchange in two-sided markets.
Until now, I have not thought much about this whole two-sided market concept. I am struggling to see what it buys you. Earlier in her post, she quotes from a Harvard Business Review article.
In the traditional value chain, value moves from left to right: To the left of the company is cost; to the right is revenue. In two-sided networks, cost and revenue are both to the left and the right, because the platform has a distinct group of users on each side. The platform incurs costs in serving both groups and can collect revenue from each, although one side is often subsidized
If I’m understanding this correctly, then a brothel is a traditional value chain, but a singles bar is a platform. In terms of that metaphor, Kiesling is suggesting that electric utilities could change from operating like brothels to operating like singles bars.
Some problems I am having:
1. I am not sure what, if anything, makes brothels the natural business model in one industry and singles bars the natural business model in another.
2. Suppose that a singles bar has to pay women in order to get them to show up. By my reading of the HBR excerpt, then it becomes a traditional value chain. Metaphorically, it becomes a brothel, although I assume that it can avoid legal difficulty as long as the beds are off premises.
3. To me, cable TV looks like a brothel, not a singles bar. And to me, electricity looks like cable TV.
4. Metaphorically speaking, taxi companies and hotels operate brothels. Uber and airbnb operate singles bars. What Uber and airbnb are tapping into is supply-capacity that taxi companies and hotels were not using, either because they didn’t think of it or because it didn’t fit their business model. Is there spare electricity-generating capacity that utilities could be tapping into? If so, do they have the know-how and flexibility to tap into it?
“I am not sure what, if anything, makes brothels the natural business model in one industry and singles bars the natural business model in another.”
I think most people who study two sided markets aren’t sure either why one market has the “X buys widgets from Y and resells them to Z” model whereas another has the “X provides a platform that Y uses to sell directly to Z” model.
Note that traditional retail can act like a two-sided market, with slotting fees for shelf space at supermarkets or bookstores.
You’re right about cable TV; for the most part it is not a two sided market. HBO and cable TV (like other premium channels) might be more of a two-sided market, since it charges users directly.
Arnold, your questions are very much in keeping with my thinking on the subject. And what I find interesting, and difficult, is thinking about what role the physical wires network plays, and how that will change over time.
Your cable TV analogy is apt; both industries have physical wires networks, the value of which is eroding as a result of distributed digital innovation. Both industries operate as regulated government-granted monopolies in their distribution territories. So one direction I would take your question is to ask whether evolving into a platform business model is an alternative to the “utility death spiral” as the value of their physical network erodes. I think that option is likely to be more fruitful than the clunky “stranded costs” regulatory bargaining that went on with generation assets during restructuring in the 1990s.